Bill Text: CA SB1316 | 2009-2010 | Regular Session | Amended
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Income taxes: property exchanges: investment credits.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2010-08-30 - Placed on inactive file on request of Senator Romero. [SB1316 Detail]
Download: California-2009-SB1316-Amended.html
Bill Title: Income taxes: property exchanges: investment credits.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2010-08-30 - Placed on inactive file on request of Senator Romero. [SB1316 Detail]
Download: California-2009-SB1316-Amended.html
BILL NUMBER: SB 1316 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 28, 2010
AMENDED IN SENATE JUNE 16, 2010
AMENDED IN SENATE APRIL 22, 2010
INTRODUCED BY Senator Romero
FEBRUARY 19, 2010
An act to amend Section 24941 of, and to add Sections 17053.9,
18036.8, and 23622.9 to, the Revenue and Taxation Code, relating to
taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 1316, as amended, Romero. Income taxes: property exchanges:
investment credits.
The Personal Income Tax Law and the Corporation Tax Law provide
that no gain or loss is recognized on the exchange of property held
for productive use in a trade or business or for investment, if that
property is exchanged solely for property of a like kind that is to
be held either for productive use in a trade or business or for
investment.
This bill would exclude from that nonrecognition any exchange of
out-of-state real property that is purchased in exchange for real
property located in California.
The Personal Income Tax Law and Corporation Tax Law authorize
various credits against the taxes imposed by those laws.
This bill would authorize a credit under both those laws, for
taxable years beginning on or after January 1, 2011, and before
January 1, 2012, in a specified amount for
investments in low-income communities, as provided. This bill would
impose specified duties on the Treasurer with regard to the
application for, and allocation of, the credit.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) The granting of tax benefits for the purchase of real property
located beyond California's borders is of no direct benefit to the
people of the State of California, and does not advance any
legitimate local purpose.
(b) The revenue from disallowing these tax benefits, which are
currently obtained from the exchange of property for like kind
property, commonly known as a 1031 exchange, can instead be used to
foster greater economic development within California's borders, and
this development advances a legitimate local purpose.
(c) While this disallowance will remove a tax benefit in the form
of deferred capital gains taxes from investors who purchase
out-of-state properties, these funds amount to only 10 percent of
California's total 1031 exchanges. Furthermore, the lion's share of
the tax benefits for these investment purchases exists at the
federal, rather than the state level. For this reason, no substantial
decrease in out-of-state real estate investments is anticipated as a
result of this legislation.
(d) In the current economic climate, the acquisition of revenue to
stimulate in-state economic development cannot be achieved by any
non discriminatory alternative.
SEC. 2. Section 17053.9 is added to the Revenue and Taxation Code,
to read:
17053.9. There is hereby created the California New Markets Tax
Credit Program as provided in this section and Section 23622.9. The
purpose of this program is to stimulate economic development, and
hasten California's economic recovery, by granting tax credits for
investment in California, including, but not limited to, retail
businesses, real property, financial institutions, and schools. The
Treasurer shall have responsibility for the administration of this
program as provided in this section and Section 23622.9. The program
shall be as follows:
(a) (1) For taxable years beginning on or after January 1, 2011,
and before January 1, 2012, there shall be
allowed to a taxpayer that holds a qualified equity investment on a
credit allowance date of the investment which occurs during the
taxable year, as a credit against the "net tax," as defined in
Section 17039, an amount equal to the applicable percentage described
in paragraph (2).
(2) For purposes of paragraph (1), the applicable percentage shall
be: be 39 percent of the qualified equity
investment.
(A) Five percent of the qualified equity investment for the first
three credit allowance dates.
(B) Six percent of the qualified equity investment for the
succeeding four credit allowance dates.
(b) For purposes of this section:
(1) "Credit allowance date" means, with respect to any qualified
equity investment, the date on which the investment is initially made
and the six succeeding annual anniversary dates .
(2) "Equity investment" means either of the following:
(A) Any stock, other than nonqualified preferred stock as defined
in Section 351(g)(2) of the Internal Revenue Code, in an entity which
is a corporation.
(B) Any capital interest in an entity which is a partnership.
(3) (A) "Low-income community" means a population census tract
where any of the following applies:
(i) The tract has a poverty rate of at least 20 percent.
(ii) The tract is not located within a metropolitan area and the
median family income does not exceed 80 percent of the statewide
median family income.
(iii) The tract is located within a metropolitan area and the
median family income does not exceed 80 percent of the greater
statewide median family income or the metropolitan area median family
income.
(iv) The tract is located within a high migration rural county and
the median income does not exceed 85 percent of the statewide median
family income. For purposes of this clause, "high migration rural
county" means a county which, during the 20-year period ending with
the year in which the most recent census was conducted, has a net out
migration of inhabitants from the county of at least 10 percent of
the population of the county at the beginning of that period.
(B) Where a community is in a location that is not tracted for
population census tracts, the equivalent county divisions shall be
used for purposes of determining poverty rates and median family
income.
(C) Where a community is in a population census tract with a
population of less than 2,000, the community shall be treated as a
low-income community if the tract is within an empowerment zone
designated under Section 1391 of the Internal Revenue Code and is
contiguous to one or more low-income communities, as determined under
this paragraph.
(4) (A) "Qualified active low-income community business" means,
with respect to any taxable year, a corporation, including a
nonprofit corporation, or partnership that, for that taxable year,
meets all of the following conditions:
(i) Derives at least 50 percent of its total gross income from the
active conduct of a qualified business in a low-income community.
(ii) A substantial portion of the use of the tangible property of
the entity, whether owned or leased, is within a low-income
community. "Substantial portion" shall be defined as 40 percent or
more of the tangible property of the entity.
(iii) Less than 5 percent of the average of the aggregate
unadjusted base of the property of the entity is attributable to
collectibles, as defined in Section 408(m)(2) of the Internal Revenue
Code.
(iv) Less than 5 percent of the average of the aggregate
unadjusted base of the property of the entity is attributable to
nonqualified financial property, as defined in Section 1397C(e) of
the Internal Revenue Code.
(B) A "qualified active low-income community business" shall
include a business carried on by an individual as a proprietor if
that business meets the requirements of subparagraph (A) were it
incorporated or a trade or business which would qualify if that trade
or business were separately incorporated.
(5) "Qualified business" has the same meaning as that in Section
1397C(d) of the Internal Revenue Code except that:
(A) In lieu of applying subparagraph (B) of paragraph (2), the
rental to others of real property located in any low-income community
shall be treated as a qualified business if there are substantial
improvements located on that real property.
(B) Paragraph (3) of that section shall not apply.
(6) (A) "Qualified community development entity" means a domestic
corporation or partnership that meets all of the following
conditions:
(i) Has a primary mission of serving, or providing investment
capital for, low-income communities or low-income persons.
(ii) Maintains accountability to residents of low-income
communities through their representation on any governing board of
the entity or on any advisory board to the entity.
(iii) Is certified by the Treasurer for purposes of this section
as being a qualified community development entity.
(B) A domestic corporation or partnership shall be deemed a
"qualified community development entity" if it is either a
specialized small business investment company, as defined in Section
1044(c)(3) of the Internal Revenue Code, or a community development
financial institution, as defined in Section 4702 of Title 12 of the
United States Code.
(7) (A) "Qualified equity investment" means any equity investment
in a qualified community development entity if all of the following
conditions are met:
(i) The investment is acquired by the taxpayer at its original
issue, directly or through an underwriter, solely in exchange for
cash.
(ii) Substantially all of the cash is used by the qualified
community development entity to make low-income community
investments. This requirement shall be deemed met if at least 85
percent of the aggregate gross assets of the qualified community
development entity are invested in qualified low-income community
investments.
(iii) The investment is designated for purposes of this section by
the qualified community development entity.
(B) "Qualified equity investment" does not include any equity
investment issued by a qualified community development entity more
than five years one year after the date
that the entity receives an allocation under subdivision (d).
Any allocation not used within that five-year period may be
reallocated by the Treasurer under subdivision (d).
(C) A "qualified equity investment" shall include any equity
investment which would, notwithstanding clause (i) of subparagraph
(A), be a qualified equity investment in the hands of the taxpayer if
the investment was a qualified equity investment in the hands of a
prior holder.
(D) Section 1202(c)(3) of the Internal Revenue Code, relating to
purchases by a corporation of its own stock, shall apply.
(8) "Qualified low-income community investment" means any of the
following:
(A) Any capital or equity investment in, or loan to, a qualified
low-income community business.
(B) Any capital or equity investment in, or loan to, a real estate
project in a low-income community.
(C) The purchase from another qualified community development
entity of any loan made by that entity which is a qualified
low-income community investment.
(D) Financial counseling and other services in support of business
activities to businesses located in, and residents of, low-income
communities.
(E) Any equity investment in, or loan to, a qualified community
development entity.
(c) The Treasurer shall prescribe regulations, guidelines, or
procedures necessary or appropriate to carry out the purposes of this
section. The regulations shall include, but are not limited to,
criteria by which additional populations may be treated as low-income
communities, the criteria by which entities are qualified active
low-income community businesses with respect to low-income
communities, and rules to avoid abuse of the purposes of the section.
(d) (1) The aggregate amount of credit that may be allowed in any
calendar year pursuant to this section and Section 23622.9 shall be
an amount equal to the aggregate revenue increase attributable in
that same calendar year to Sections 18036.8 and 24941, as amended by
the act adding this section, as certified
estimated by the Franchise Tax Board , so as to
achieve a revenue neutral effect.
(2) The aggregate amount of credit specified under paragraph (1)
shall be allocated by the Treasurer among entities that apply for the
allocation. The Treasurer shall give priority to applications that
either are submitted by an entity that has a record of successfully
providing capital or technical assistance to disadvantaged businesses
or communities or entities that intend to make qualified low-income
community investments in one or more businesses in which persons
unrelated to the entity hold the majority equity interest.
(e) Any credits used under subdivision (a) for a qualified equity
investment where a recapture event occurs at any time before the
close of the seventh taxable year after the qualified equity
investment shall be included in the income in the taxable year in
which the recapture event occurred. For purposes of this subdivision,
a "recapture event" shall include any of the following with respect
to an equity investment in a qualified community development entity:
(1) The qualified community development entity ceases to be a
qualified community development entity.
(2) The proceeds of the investment cease to be used as required
under clause (ii) of subparagraph (A) of paragraph (7) of subdivision
(b).
(3) The investment is redeemed by a qualified community
development entity.
SEC. 3. Section 18036.8 is added to the Revenue and Taxation Code,
to read:
18036.8. For taxable years beginning on or after January 1, 2011,
and before January 1, 2012, the provisions of Section
1031 of the Internal Revenue Code, relating to the exchange of
property held for productive use or investment, shall not apply to
out-of-state real property that is received in exchange for real
property located in California.
SEC. 4. Section 23622.9 is added to the Revenue and Taxation Code,
to read:
23622.9. There is hereby created the California New Markets Tax
Credit Program as provided in this section and Section 17053.9. The
purpose of this program is to stimulate economic development, and
hasten California's economic recovery, by granting tax credits for
investment in California, including, but not limited to, retail
businesses, real property, financial institutions, and schools. The
Treasurer shall have responsibility for the administration of this
program as provided in this section and Section 17053.9. The program
shall be as follows:
(a) (1) For taxable years beginning on or after January 1, 2011,
and before January 1, 2012, there shall be
allowed to a taxpayer that holds a qualified equity investment on a
credit allowance date of the investment which occurs during the
taxable year, as a credit against the "tax," as defined in Section
23036, an amount equal to the applicable percentage described in
paragraph (2).
(2) For purposes of paragraph (1), the applicable percentage shall
be: be 39 percent of the qualified equity
investment.
(A) Five percent of the qualified equity investment for the first
three credit allowance dates.
(B) Six percent of the qualified equity investment for the
succeeding four credit allowance dates.
(b) For purposes of this section:
(1) "Credit allowance date" means, with respect to any qualified
equity investment, the date on which the investment is initially made
and the six succeeding annual anniversary dates .
(2) "Equity investment" means either of the following:
(A) Any stock, other than nonqualified preferred stock as defined
in Section 351(g)(2) of the Internal Revenue Code, in an entity which
is a corporation.
(B) Any capital interest in an entity which is a partnership.
(3) (A) "Low-income community" means a population census tract
where any of the following applies:
(i) The tract has a poverty rate of at least 20 percent.
(ii) The tract is not located within a metropolitan area and the
median family income does not exceed 80 percent of the statewide
median family income.
(iii) The tract is located within a metropolitan area and the
median family income does not exceed 80 percent of the greater
statewide median family income or the metropolitan area median family
income.
(iv) The tract is located within a high migration rural county and
the median income does not exceed 85 percent of the statewide median
family income. For purposes of this clause, "high migration rural
county" means a county which, during the 20-year period ending with
the year in which the most recent census was conducted, has a net out
migration of inhabitants from the county of at least 10 percent of
the population of the county at the beginning of that period.
(B) Where a community is in a location that is not tracted for
population census tracts, the equivalent county divisions shall be
used for purposes of determining poverty rates and median family
income.
(C) Where a community is in a population census tract with a
population of less than 2,000, the community shall be treated as a
low-income community if the tract is within an empowerment zone
designated under Section 1391 of the Internal Revenue Code and is
contiguous to one or more low-income communities, as determined under
this paragraph.
(4) (A) "Qualified active low-income community business" means,
with respect to any taxable year, a corporation, including a
nonprofit corporation, or partnership that, for that taxable year,
meets all of the following conditions:
(i) Derives at least 50 percent of its total gross income from the
active conduct of a qualified business in a low-income community.
(ii) A substantial portion of the use of the tangible property of
the entity, whether owned or leased, is within a low-income
community. "Substantial portion" shall be defined as 40 percent or
more of the tangible property of the entity.
(iii) Less than 5 percent of the average of the aggregate
unadjusted base of the property of the entity is attributable to
collectibles, as defined in Section 408(m)(2) of the Internal Revenue
Code.
(iv) Less than 5 percent of the average of the aggregate
unadjusted base of the property of the entity is attributable to
nonqualified financial property, as defined in Section 1397C(e) of
the Internal Revenue Code.
(B) A "qualified active low-income community business" shall
include a business carried on by an individual as a proprietor if
that business meets the requirements of subparagraph (A) were it
incorporated or a trade or business which would qualify if that trade
or business were separately incorporated.
(5) "Qualified business" has the same meaning as that in Section
1397C(d) of the Internal Revenue Code except that:
(A) In lieu of applying subparagraph (B) of paragraph (2), the
rental to others of real property located in any low-income community
shall be treated as a qualified business if there are substantial
improvements located on that real property.
(B) Paragraph (3) of that section shall not apply.
(6) (A) "Qualified community development entity" means a domestic
corporation or partnership that meets all of the following
conditions:
(i) Has a primary mission of serving, or providing investment
capital for, low-income communities or low-income persons.
(ii) Maintains accountability to residents of low-income
communities through their representation on any governing board of
the entity or on any advisory board to the entity.
(iii) Is certified by the Treasurer for purposes of this section
as being a qualified community development entity.
(B) A domestic corporation or partnership shall be deemed a
"qualified community development entity" if it is either a
specialized small business investment company, as defined in Section
1044(c)(3) of the Internal Revenue Code, or a community development
financial institution, as defined in Section 4702 of Title 12 of the
United States Code.
(7) (A) "Qualified equity investment" means any equity investment
in a qualified community development entity if all of the following
conditions are met:
(i) The investment is acquired by the taxpayer at its original
issue, directly or through an underwriter, solely in exchange for
cash.
(ii) Substantially all of the cash is used by the qualified
community development entity to make low-income community
investments. This requirement shall be deemed met if at least 85
percent of the aggregate gross assets of the qualified community
development entity are invested in qualified low-income community
investments.
(iii) The investment is designated for purposes of this section by
the qualified community development entity.
(B) "Qualified equity investment" does not include any equity
investment issued by a qualified community development entity more
than five years one year after the date
that the entity receives an allocation under subdivision (d).
Any allocation not used within that five-year period may be
reallocated by the Treasurer under subdivision (d).
(C) A "qualified equity investment" shall include any equity
investment which would, notwithstanding clause (i) of subparagraph
(A) of this paragraph, (A), be a
qualified equity investment in the hands of the taxpayer if the
investment was a qualified equity investment in the hands of a prior
holder.
(D) Section 1202(c)(3) of the Internal Revenue Code, relating to
purchases by a corporation of its own stock, shall apply.
(8) "Qualified low-income community investment" means any of the
following:
(A) Any capital or equity investment in, or loan to, a qualified
low-income community business.
(B) Any capital or equity investment in, or loan to, a real estate
project in a low-income community.
(C) The purchase from another qualified community development
entity of any loan made by that entity which is a qualified
low-income community investment.
(D) Financial counseling and other services in support of business
activities to businesses located in, and residents of, low-income
communities.
(E) Any equity investment in, or loan to, a qualified community
development entity.
(c) The Treasurer shall prescribe regulations, guidelines, or
procedures necessary or appropriate to carry out the purposes of this
section. The regulations shall include, but are not limited to,
criteria by which additional populations may be treated as low-income
communities, the criteria by which entities are qualified active
low-income community businesses with respect to low-income
communities, and rules to avoid abuse of the purposes of the section.
(d) (1) The aggregate amount of credit that may be allowed in any
calendar year pursuant to this section and Section 17053.9 shall be
an amount equal to the aggregate revenue increase attributable in
that same calendar year to Sections 18036.8 and 24941, as amended by
the act adding this section, as certified
estimated by the Franchise Tax Board, so as to achieve a
revenue neutral effect.
(2) The aggregate amount of credit specified under paragraph (1)
shall be allocated by the Treasurer among entities that apply for the
allocation. The Treasurer shall give priority to applications that
either are submitted by an entity that has a record of successfully
providing capital or technical assistance to disadvantaged businesses
or communities or entities that intend to make qualified low-income
community investments in one or more businesses in which persons
unrelated to the entity hold the majority equity interest.
(e) Any credits used under subdivision (a) for a qualified equity
investment where a recapture event occurs at any time before the
close of the seventh taxable year after the qualified equity
investment shall be included in the income in the taxable year in
which the recapture event occurred. For purposes of this subdivision,
a "recapture event" shall include any of the following with respect
to an equity investment in a qualified community development entity:
(1) The qualified community development entity ceases to be a
qualified community development entity.
(2) The proceeds of the investment cease to be used as required
under clause (ii) of subparagraph (A) of paragraph (7) of subdivision
(b).
(3) The investment is redeemed by a qualified community
development entity.
SEC. 5. Section 24941 of the Revenue and Taxation Code is amended
to read:
24941. (a) Section 1031 of the Internal Revenue Code, relating to
exchange of property held for productive use or investment, shall
apply, except as otherwise provided.
(b) For taxable years beginning on or after January 1, 2011,
and before January 1, 2012, the provisions of Section 1031 of
the Internal Revenue Code, relating to the exchange of property held
for productive use or investment, shall not apply to out-of-state
real property that is received in exchange for real property located
in California.
SEC. 6. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.
